PAPER B
Purpose
: For Decision
REPORT
TO THE EXECUTIVE
Date : 12 JANUARY 2005
Title : REVENUE SUPPORT GRANT
SETTLEMENT 2005-06
REPORT OF THE PORTFOLIO HOLDER FOR RESOURCES
IMPLEMENTATION DATE : 24 January 2005
SUMMARY/PURPOSE
1.
This report sets out the provisional grant settlement
for the coming financial year, and its implications for the Council’s 2005-06
budget. The final settlement details are not expected until later this month.
BACKGROUND
2.
The provisional settlement announced on 2nd
December was significantly better than had been anticipated from the Spending
Review 2004 figures announced earlier this year.
3.
A figure of just under £1 billion of extra assistance
to local authorities is included in the proposals nationally. This comprises
three elements:
(a)
Additional formula grant £358m
(b)
Specific grant adjustments £278m
(c)
Other measures £325m
Details are set out in appendix B. A major concern
is the one-off nature of many of these measures.
4.
In announcing the settlement, the Minister has made
clear his expectation that Council Tax rises will average less than 5%, and
that he is prepared to use his capping powers if necessary to achieve this.
5.
Notwithstanding the implications for 2006-07, the
proposals make it more manageable for the Council to achieve its stated
aspiration for a Council Tax increase of no more than 5%. There remains however
a savings requirement in addition to the £1.9 millions of reductions already
identified, as the following table shows:
|
Tax Increase (%)
|
Savings needed (£000)
|
Not yet identified (£000)
|
|
6.5
|
1,975
|
68
|
|
6.0
|
2,258
|
351
|
|
5.5
|
2,541
|
634
|
|
5.0
|
2,824
|
917
|
|
4.5
|
3,107
|
1,200
|
|
4.0
|
3,390
|
1,483
|
|
3.5
|
3,673
|
1,766
|
|
3.0
|
3,956
|
2,049
|
6.
Those figures assume that the full increase in Schools’
FSS is passed through to the Schools’ budget in full in accordance with the
intention of the Portfolio Holder for Children’s Services and communicated to
the Secretary of State on 20th December 2004. It also includes
provision for the following expenditure priorities and pressures:
£000
· Fire
modernisation (IPDS) 329
· Bridge
inspections 80
· Social
Services cost pressures 1,306
7.
Details of the proposed Isle of Wight settlement are
shown in appendix A. These include:
· Above
average increases for Education, but offset by withdrawal of the protection
(damping) enjoyed in the current year against the grant losses of 2003-04
· A poor
highways maintenance settlement with a cash increase of only 0.5%
· An
inexplicably high capital financing FSS
· A
massive increase in the share of Formula Grant coming from Business Rates. We
are assured that this is for reasons other than the recent revaluation.
8.
As well as the 2005-06 grant proposals, the Government
has also issued an amending order in respect of the 2003-04 settlement. This
claws back grant from many authorities in order to correct errors in the Office
of National Statistics population figures for Westminster, Liverpool and a
number of other councils. The cost for this Council is £244,000, with a similar
loss in prospect for 2004-05, and represents an unwelcome return to the days of
grant uncertainty even after the end of a financial year.
STRATEGIC CONTEXT
9.
The Council’s budget is a financial expression of its
strategic priorities and plans. The Grant Settlement represents a major
component of that budget.
CONSULTATION
10.
Budget consultation has taken place this year through
the Citizens’ Panel, and meetings with various groups of stakeholders which are
still underway. Members are required to have regard to the results of
consultation when determining the budget recommendation.
FINANCIAL/BUDGET IMPLICATIONS
11.
As members will know, Formula Grant distributed
through the RSG settlement provides almost two thirds of the Council’s net
funding. The adequacy or otherwise of the settlement therefore has a major
impact on its ability to meet service and cost pressures without recourse to
service cuts or high Council Tax increases.
12.
There are three key issues which determine whether a
settlement is adequate:
(a)
Whether the Formula Spending Share at national level
is adequate to meet spending needs of local government generally
(b)
Whether the Isle of Wight retains or improves its
share of the total FSS sufficiently to meet local pressures, for example higher
than average population growth. Appendix D shows how the Council’s draft budget
compares with its FSS increase.
(c)
The tax increase which is implied in the settlement
for an authority spending at FSS in both 2004-05 and 2005-06. The Spending
Review 2004 figures previously published by the Government indicated an
increase in Council Tax yield of 6.7% for ‘standard spending’ authorities. The
new funding made available in the provisional settlement reduces this to 4.8%,
and after allowing for growth in the tax base the ‘standard’ Band D increase
comes down to 3.6%.
LEGAL IMPLICATIONS
13.
The Council is required to set the Council Tax by 11th
March each year, and in so doing to formulate a robust budget. In reality, the
Council will need to set the budget by on 22nd February if delays to
the billing process are to be avoided. The Constitution requires the Executive
to recommend a budget to Full Council for determination.
OPTIONS
14.
(a)
To note the report and to take the information
contained within it into account in recommending a budget to Full Council for
determination.
EVALUATION/RISK MANAGEMENT
15.
Uncertainties surrounding the provisional settlement
are greater than usual this year. These include:
· Concern
over the Government’s estimate of the national tax base, which if
over-optimistic would have an adverse effect in the final settlement
· A
consultation figure for Capital Financing which may be significantly overstated
for many Councils
· A
methodology for the transfer of Social Services grants into general grant which
is better than expected for this Council, but which is still subject to
consultation.
These
issues will be resolved when the final settlement is known later this month. A
more enduring risk relates to the impact which heavy reliance on one-off
Government funding in 2005-06 will have on the 2006-07 budget.
A
further risk is Council Tax capping. As usual, capping criteria will not be
known until after budgets and taxes have been set.
RECOMMENDATIONS
16.
Option 14(a)
|
BACKGROUND PAPERS
17.
Revenue Support Grant consultation document published
by the ODPM on 2nd December 2004.
18.
I.W.C. publication “Budget 2004-05”
ADDITIONAL INFORMATION
19.
Appendices:
(a)
The consultation proposals for the Isle of Wight, with
national comparisons
(b)
Analysis of £1 billion extra help announced with the
proposals
(c)
Analysis of draft budget changes from 2004-05 to
2005-06
(d)
Comparison of FSS with spending needs.
Contact
Point : Paul Wilkinson (823606
[email protected]
|
MIKE
FISHER
Strategic
Director
Chief Executive Officer
|
REG BARRY
Portfolio Holder for Resources
|